Engaging Contract Labour: The prerequisites and the pitfalls

Aug 03, 2015

By Neeraj Dubey

Introduction

Companies engage contract labour to keep the head count low and for the scalability and flexibility it provides in management of workforce. Though employment of contract labour in India has attracted debates, it has become a significant and growing form of employment, engaged in different occupations including skilled, semi skilled and unskilled jobs across sectors. While engaging contract labours, companies need to exercise caution and need to understand the laws that govern their relationship with the contract labours. In this article we would discuss the fundamentals of engaging contract labour and the pitfalls that can be avoided to have a congenial environment in the company.

Contract Labour: Definition & engagement

“Contract labour” can be distinguished from “direct labour” in terms of employment relationship with the principal establishment and the method of wage payment. A workman is deemed to be a contract labour when he/she is hired in connection with the work or “contract for service” of an establishment by or through a contractor. They are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn is compensated by the establishment. In either form, contract labour is neither borne on pay roll or muster roll or wages paid directly to the labour. (Report of the National Commission on Labour, 1969)

The Contract Labour (Regulation & Abolition) Act, 1970 (Act) permits companies and establishments in the manufacturing and services sectors to engage contract labour through contractors. Such an engagement can be only for work that do not form part of the core operations, which is guided by the memorandum of association of the company. Prior to the enactment of the Act, in the case of Standard Vacuum Refinery Company v. Their Workmen (1960), the Supreme Court of India had observed that contract labour should not be employed where: (i) The work is perennial and must go on from day to day; (ii) The work is incidental to and necessary for the work of the factory; (iii) The work is sufficient to employ considerable number of whole time workmen; and (iv) The work is being done in most concerns through regular workmen.

The Act allows the government to prohibit employers from employing contract labour in its core process after examining whether (i) the work performed by contract labour is permanent in nature; (ii) the process or operation is incidental or necessary for the employer; (iii) such process or work is ordinarily performed by regular employees of other similar employers; and (iv) sufficient number of whole-time employees can be deployed to perform the work. Therefore, contract labours are generally engaged for support services like housekeeping, gardening, security, catering, maintenance, transport, etc.